From Disaster to Glory

Did you ever wonder how Apple competes and wins, over and over?

• In 1997 Apple was in shambles.
• In 2018 Apple became the first compay to reach $1 trillion in market cap.
• In 2023 Apple was named the world’s most admired company by Fortune Magazine, for the 16th year in a row.

In The Beginning

In 1997 Michael Dell, riding the coattails of a brilliant distribution strategy and booming laptop sales, stated that if ran Apple he’d shut it down and return the money to the shareholders. This writing unpacks how Apple competes and wins, including market strategy, key management decisions, product strategy, customer loyalty and more.

How Apple competes and wins?

Competitive strategy…

We can learn big lessons in competitive strategy from how Apple took on Sony…and won. Here’s the Apple strategy story.

Sony was #1 and dominated the market

 

  In 1997 Sony owned, by far, the best reputation for consumer electronics innovations. Sony had the product, marketing and engineering talent as shown by a legacy of runaway consumer electronics successes. It was already in the PC market as well as the entertainment and content markets via Sony Entertainment. Sony had second-to-none global distribution and its marketing and advertising were simply brilliant. In 1997 two entirely unrelated events were taking place. The Asian financial crisis was in full bloom and Steve Jobs was returning to lead Apple, via Apple’s NeXT acquisition, following a 12-year absence from the company he had co-founded and was now floundering. Jobs knew the strategic implications of the downward spiraling Japanese economy and how they would affect the darling of the branded consumer products world: Sony.

Flinging the doors open

A critical key to how Apple competes and wins is continuous innovation. Steve Jobs flung wide open Apple’s doors to innovative strategic thinking and brilliant execution. He rewarded it with programs like Apple Fellows. In addition Jobs did what few CEOs are able to do…nurture innovation toward a clear stretch goal. In Apple’s case the goal was creating and dominating a promising segment of consumer electronics while consigning the rest to hopelessly entrenched competitors like Sony. Since Jobs’ return, Apple has broken through conventional thinking time and again, creating and sustaining eye-popping value for consumers and investors around the globe. It happened with brilliant marketing moves, that any company can copy. These moves transformed Apple into The World’s Most Admired Company.

 

Apple’s market and product strategy

From a strategy standpoint, Apple noticed that Sony could not decouple its innovation engine from its freight train of legacy products. Sony was forced to deliver incremental innovations to continue selling money losing products like TVs, CD players and others just to retain distribution and manufacturing volume.  At that time, big box retailers demanded that consumer electronics manufacturers carry a wide and varied product line for retail differentiation. Plus step-up and add-on sales. The ensuing product line complexity was like a cancer, constantly eating away profits from volume- addicted manufacturers like Sony, Philips, Thompson and others. All of these publicly traded companies were hugely volume dependent (manufacturing overhead) and any loss of significant distribution would cause those business models to collapse. Jack Welch recognized these money-losing handcuffs early on and exited GE from consumer electronics. In addition, as the Japanese economy continued to spiral downward, Sony was becoming more entrenched and bureaucratic, which put it at a competitive disadvantage for addressing any new trends.

The iMac & MacBook strategy: mashing up

 

Recognizing the trends, even when your competitors don’t, is just the first step. With few exceptions it takes serious numbers crunching to understand what the trends imply for revenue and profit growth. After that it takes concentration and carefully executed stratetgy to to succeed.

Jobs’ secret sauce was his ability to think through the implications of trends that anyone could have seen at the time.

Specifically, Apple noticed that no other competitor was addressing the product reliability problems created from mashing up hardware, software and operating systems from separate companies to create a PC or laptop.

With a keen view toward making creativity simpler for innovative users, Apple built a moat around its new iMac by becoming the only PC manufacturer with homegrown hardware, software and operating systems. The iMac was introduced in 1998 and the OS X platform in 2001. Then Apple went to work on profitable product line extensions and profitable satellite businesses that orbited around the iMac.

A key trend that Apple noticed was a growing preference for personalization and that the microchip, data storage and entertainment industries were running parallel with it. The company responded by introducing the i-brand strategy. Apple introduced the iPod and the Apple Store in 2001. iTunes followed in 2003. The Apple Store ushered in a whole new build-to-order manufacturing strategy and other profit improvement platforms. At the center, still, was the iMac.

Sony should have invented the iMac, the iPod and the juggernaut of innovative products and distribution. It was far better capitalized and had many competitive advantages.

Today, Sony  plays a distant second fiddle to Apple. Apple’s market cap is 25 times that of Sony’s.

Sony is a sad example of a once dominant company that had it all, but was handcuffed by product strategy and too distracted  to pay attention to the trends and what was driving them.

Today, Apple’s market cap is the largest in the world.

This tells us that investors are pouring big money into innovation and momentum. As they always have.

Apple has the formula to keep on hitting the long ball, like Sony once had.

But will it?